The limited partnership has been recognized and legalized by the Law of Partnership Enterprises of China in 2006. Owing to the lack of a regime of ‘piercing the veil of limited partners’ in this legislation, however, limited partners commonly actively participate in management without any unlimited liability, which has seriously decreased the efficiency of fund management and even led to governance failures in practice. The Chinese venture capital (VC) market is commonly regarded as a striking achievement of the market economy reform of China since the 1980s, the strong state control over the VC funds in contemporary China, however, is still unshakable. This article attempts to explore the root reason of this disadvantage in Chinese partnership law by considering the role of the state in the VC industry of China during the recent decades and concludes that the lack of a regime of ‘piercing the veil of limited partners’ in Chinese partnership law is caused by the active role of the state in the VC industry and the prioritized state-owned capital in the Chinese economy.